Bitcoin Remains Stagnant - The Repercussions of Geopolitical Tensions, Interest Rate Hikes & Inflation

After years and years of dominance within the digital asset space, bitcoin has become somewhat stagnant. Prices are beginning to fall, coins are moving much less often, and digital asset-related funds are seeing massive outflows. Searches related to bitcoin and other digital assets have also begun dropping. For example, Google searches containing bitcoin have declined, and social-media activity in the Crypto Subreddit group has fallen compared to last year.

This may come as a surprise as bitcoin reached a new all-time high, ($68,000 CAD) in November 2021. Since then, however, there has been a massive sell-off, and the digital asset space has yet to really recover (being down around 40% since that record). It seems that the emphatic excitement that once permeated the space has begun to waver. This isn't the first time popularity of digital assets has dropped. In 2017 and 2018, a significant surge of popularity jolted the space to near mass adoption; however, it faded. It wasn't until the last few years that digital assets' prominence shot back up. To further illustrate this point, aUBS analysis of around 160 products indicates that April will see the most significant crypto-ETF outflows on record - leading to investors pulling more than $533 million CAD that month alone.

What is the Cause of Digital Assets Diminished Popularity?

While the space has seen a massive influx of investors over the last two years, those numbers are decreasing. This could be caused by several reasons.

One of the more pressing issues that have recently come up is

inflation

. This year has seen digital assets and other volatile assets sold off as banks begin to raise interest rates to curb inflation.

The other obvious factor is Ukraine's current

conflict, which

has brought even more volatility into the space. Immediately following the invasion, bitcoin dropped below $45,000 CAD, while

ether

dropped below $3,100 CAD.

War is known to bring volatility in global financial markets, not just digital assets, so as the conflict persists, the volatility will remain. The invasion has caused the plummeting of numerous assets while traditional inflation-hedging investments like gold and fiat are trading higher.

Also, the

Federal Reserve announced its plans to raise interest rates

in May, the first time rates have been hiked since March 2018. As in the past, rising interest rates lead to a period of market volatility. Because the Federal Reserve has indicated multiple increases, it would seem that there will be at least another year of continued volatility.

Finally, bitcoin's decline in popularity could also be attributed to the digital asset's supply moving into long-term-holder accounts. Data shows that a significant amount of bitcoin has been removed from exchanges as of late. These coins remain in cold storage and will likely not be traded for some time. This has led to illiquid coins not increasing in growth, while the rate at which the digital asset is going into long-term-holder accounts also increases.

However, this data could have an upside. In prior occasions of this outflow level, there has been a sharp upward movement that follows.

Though interest in crypto assets has dwindled, the market tends to bounce back, and digital assets may again see the same popularity it has benefited from for the past two years, favouring those who 'hodl.'

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